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Rating Action:

Moody's changes Adecoagro's outlook to stable; affirms Ba2 ratings

31 Mar 2021

New York, March 31, 2021 -- Moody's Investors Service, ("Moody's") has today affirmed Adecoagro S.A. ("Adecoagro")'s Ba2 Corporate Family Rating and the Ba2 rating on its senior unsecured rating. Outlook changed to stable from negative.

Affirmations:

Issuer: Adecoagro S.A.

Corporate Family Rating, Affirmed Ba2

Senior Unsecured Regular Bond/Debenture, Affirmed Ba2

Outlook Actions:

Issuer: Adecoagro S.A.

Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The change in outlook to stable reflects Adecoagro's sustained credit metrics and adequate liquidity despite the effects of the corona virus (COVID-19) crisis that reduced ethanol demand and prices. Adecoagro's consolidated EBITDA increased by 7.6% in 2020 to $376 million, while gross leverage improved to 3.1x from 3.4x in the end of 2019. Liquidity also strengthened through liability management and positive free cash flow generation.

In 2020, the rapid and widening spread of the coronavirus outbreak lead to falling oil prices and asset price declines creating a severe and extensive credit shock across many sectors, regions and markets. The drop in fuel demand caused by lockdowns in Brazil, since March 2020, coupled with a sharp drop of international oil prices resulted in lower ethanol prices in USD terms. Adecoagro was able to shift its production from ethanol to sugar, mitigating the lower fuel prices. Ethanol and energy revenues reduced by 44% on lower production and lower USD prices to $217.4 million, while sugar revenues increased by 72.7% to $167.8 million with a sharp increase in production and a 90% increase in sales volumes that resulted in $253 million EBITDA from its sugar-ethanol business segment. Adecoagro's consolidated EBITDA also benefitted from a 67.8% increase in the EBITDA generated from its rice segment boosted by higher prices. The company has also demonstrated positive results from projects it has been developing during the last few years, which include the expansion of its dairy business segment and the diversification into downstream and increasing production of peanuts. Between 2017 and 2020, Adecoagro has increased its milking cows herd to 13,100 from 7,000 and entered the downstream business through the acquisition of retail brands like Las Tres Niñas and Angelita to penetrate the powdered milk and cheese segments. That resulted in a 21% increase in the EBITDA derived from its dairy segment. Finally, land sales in Argentina contributed with $18.1 million of the company's adjusted EBITDA.

Adecoagro's Ba2 ratings incorporate its position in Brazil´s sugar-ethanol sector, including the economies of scale because of the large size of its plants, high productivity levels, which allow for one of the lowest cost profiles compared with local peers. Adequate credit metrics and financial policies are also key credit considerations, especially given the industry's inherent price volatility and event risk. The experienced management team and diversification into agricultural products in Argentina are additional credit positives.

Raw material concentration in one region is a constraint for the company, especially with the volatility in agriculture commodities prices and event risks. Other constraints include the company's small scale compared with its global peers, and its country risk exposure to Argentina (Government of Argentina, Ca stable) and Brazil (Government of Brazil, Ba2 stable).

Liquidity is adequate. In December 2020, Adecoagro had $336 million in cash and cash equivalents and $158 million in short-term debt. Total Moody's adjusted debt is at $1.2 billion and gross leverage at 3.1x in the same period. In 2021, Moody's expects EBITDA to remain flat at around $375 million. Despite an increase in farming and sugar-ethanol EBITDA on higher production and higher average prices, Moody's does not consider any EBITDA gain from the land management segment in 2021.

The stable outlook reflects Moody's expectation that Adecoagro will continue to benefit from its increasing sugar-cane crushing capacity, which provides continuous cost dilution, and increasing diversification in the farming business. The stable outlook also incorporates Moody's expectation that dividend payments and investments in expansions will not jeopardize Adecoagro's adequate liquidity and leverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded in case of a deterioration in the company´s liquidity profile, profitability or credit metrics. Quantitatively, a downgrade could happen if Debt/EBITDA remains above 3.5x or EBITA/Interest Expense remains below 2.0x.

An upgrade would require an enhanced business profile with increased product and geographic diversification - reducing country specific risks and event risks that are inherent to the agricultural activity. It would also require a sustained free cash flow generation and a sustained liquidity profile with a cash balance that consistently covers its short-term obligations. Quantitatively an upgrade would require Debt/EBITDA below 2.5x and EBITA/Interest Expense above 5.0x.

The principal methodology used in these ratings was Protein and Agriculture published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113389. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Adecoagro S.A., the group's ultimate parent company, is headquartered in Luxembourg and it generated sales of $818 million for the last twelve months ending December 31, 2020. An average of 54% of these sales were generated by the Brazilian operations in the last three years. The company is primarily engaged in agricultural and agro-industrial activities into three segments: (i) sugar-ethanol and energy, mainly in Brazil; (ii) farming, including the production and commercialization of soy, corn, wheat, rice, dairy and others, and (iii) land transformation. In 2020 the company´s consolidated EBITDA reached $376 million with a margin of 46%.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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